War between United, Southwest looms over Houston

Plan for Hobby global flights triggers clash between airlines

By Kiah Collier and Chris Moran

Updated
10:50 pm CDT, Wednesday, April 4, 2012

Southwest Airlines ticketing agent Amy Jackson, left, checks in customers last week at William P. Hobby Airport. Southwest is seeking the city's approval to build a new international terminal at the airport in south Houston.

Southwest Airlines ticketing agent Amy Jackson, left, checks in customers last week at William P. Hobby Airport. Southwest is seeking the city's approval to build a new international terminal at the airport in

Southwest Airlines ticketing agent Amy Jackson, left, checks in customers last week at William P. Hobby Airport. Southwest is seeking the city's approval to build a new international terminal at the airport in south Houston.

Southwest Airlines ticketing agent Amy Jackson, left, checks in customers last week at William P. Hobby Airport. Southwest is seeking the city's approval to build a new international terminal at the airport in

A proposal by Southwest Airlines to offer international flights from Hobby Airport has triggered an intense lobbying duel with United Airlines, which still wields considerable local clout as the successor to Houston-based Continental.

If it gets city approval, Southwest says it would spend an estimated $75 million to $100 million to build a new international terminal equipped with full-scale Customs facilities, as well as to improve the aging airport's domestic terminals. Southwest flights would depart from the new terminal to destinations such as Cancun and the Caribbean.

But United has already broken ground on what may become another international terminal, a $700 million investment piled on top of an additional billion it has pumped into Bush Intercontinental Airport since the late 1990s.

United says this town isn't big enough for both projects.

While the city awaits two consultants' reports, expected next week, on the pros and cons of Hobby going international, both airlines have dispatched emissaries to City Hall. The outcome of their lobbying battle will determine whether Houston becomes the sixth among the nation's 10 largest cities to have two full-scale, international airports.

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Comparing the two competitors

Southwest Airlines wants to start international flights out of Hobby Airport. United, whose local presence is out of Bush Intercontinental Airport, is against it. A look at the airlines and airports:

"The airport is not in the position of choosing winners and losers," Diaz said. "We're in a position of laying down a level playing field."

In letters to airport officials in the past week, United has argued that the deal would damage the economy by diluting international traffic at Bush - traffic United depends on to fill overseas flights, many of which originate elsewhere. Those flights create jobs and boost trade by making Houston accessible from spots across the globe, United said in a letter to Parker.

Increased competition

Southwest argues that its plan would create jobs and decrease airfares because United - which dominates local flights to Latin America - would face more competition.

"More passengers will fly to IAH because fares will be lower and that will stimulate demand at both airports," said Ron Ricks, executive vice president for Southwest.

United also fears that equipping Hobby with a full-scale Customs and Border Protection facility would force the federal government to split Customs officers between Hobby and Bush Intercontinental.

Brian Znotins, United's managing director of international planning, said fewer Customs officers would result in longer lines and longer layovers and eventually would prompt more international air travelers to book flights through another hub. Customs officers are scarce, Znotins said.

"To the extent we can get more officers from the federal government - or keep them - they're much better used at Bush Intercontinental than they are at Hobby," Znotins said.

Ricks called that argument the "biggest red herring I've heard in my 40-year career." The federal government has a duty to staff airports with an appropriate number of officers, he said.

Threats to leave

Diaz said the airport system would never let Customs staffing at Intercontinental diminish to the point where passengers would suffer.

If Diaz decides the Hobby plan is promising enough to forward to the City Council for a vote as early as May 9, he said he "could make a very, very good argument" for sending more Customs officers to Houston.

U.S. Customs and Border Patrol declined to comment on whether it would have to reassign officers to a new facility.

Both airlines are threatening to take their business elsewhere if they're on the losing end of what Parker called a "historic" decision that's affected by recent shakeups in the airline industry.

Southwest has never offered international flights, but last year it bought AirTran Airways, which does. Southwest wants to add Houston to its growing list of launching pads - for various reasons, including location and room for expansion - but it's not the only city on its list, Ricks said.

"Southwest Airlines is going to grow internationally, and this economic benefit will be conferred on some community in one way or another," Ricks said.

In addition to the policy questions, the Hobby debate is thick with politics.

Moved jobs to Chicago

United's arguments hint at a home-field advantage by virtue of its 2010 merger with Continental, the longtime Houston airline, and the 17,000 Houstonians it employs.

But United moved 1,500 corporate jobs from Houston to Chicago as part of the merger.

"They moved their headquarters from here to Chicago. I don't have any great love for that move," said Councilman Andrew Burks, who supports Southwest's proposal.

United may have bought good will more directly - with cash. It has the leverage of hundreds of millions of dollars on the line.

United has warned that the Hobby project would force the airline to reconsider its future infrastructure investment in Bush Intercontinental, including its decision to put its newer, bigger airplanes there.

The first phase of a renovation project at Terminal B that began early this year represents a $97 million investment by United. An additional $589 million could follow, "based on demand and economic conditions," according to a city document. If the economics don't work, United could pull the plug and invest its money - and create jobs - elsewhere.

United reminded Diaz in a letter last week of United and Continental's investments in Bush and said the merged company is proceeding with the Terminal B project based on the understanding that the system would "continue to develop IAH as its only international airport."

"Splitting international service between the two Houston airports would severely devalue that investment," the letter states.

Hired an insider

United is pressing its position through a messenger with deep ties to City Hall. It hired Marty Stein, Parker's former agenda director, last year and assigned her lobbying duties this year.

When Stein stepped down, she was hailed as a city hall legend. Parker said she had begged Stein to stay and told her, "There is a level of trust with you."

As soon as Stein's one-year prohibition on lobbying expired at the end of January, she was dispatched to visit her old colleagues. Southwest representatives are visiting City Hall as well.

Just hours after Parker and the United brass broke ground for the Terminal B project at Bush on Jan. 23, Southwest CEO Gary Kelly was in the mayor's office continuing his pitch to Parker for international flights out of Hobby.

City Council members, meanwhile, are lining up in ways that reflect loyalty to the neighborhoods they represent.

District E Councilman Mike Sullivan stands with United. He said the airline has told him that more of its employees live in his district than in any other.

Councilman James Rodriguez, whose District I includes Hobby, backs Southwest due to prospects for job creation in southeast Houston.

Councilman Jerry Davis, whose District B includes Bush Intercontinental, said, "I will not support any proposal that has the potential to adversely affect the businesses that operate at and around Intercontinental Airport."

Ricks describes Southwest's proposal as a "no-cost, no-risk" plan, given the airline's willingness to front the infrastructure costs and the likelihood of thousands of jobs and millions of dollars of economic impact.

"We have the financial strength that if the city of Houston wants to pursue this idea, then we can implement the idea without any cost to Houston taxpayers," said Ricks, the airline's chief legal and regulatory officer. "We at Southwest would take 100 percent of the risk for launching that service."

Feasibility study

Ricks predicted the feasibility studies will make the economic benefits of the project to the city clear. The small scale of the proposed Hobby operation - up to 25 daily flights from five gates - poses no threat to the international operation at Bush, which offers flights from 35 gates.

United is fond of calling Houston "the largest hub for the world's largest airline." And United has added the most markets to Bush among its eight hubs since the merger, including Chicago O'Hare, Znotins said.

United does not oppose Southwest starting international service out of Bush, where the airlines can share Customs agents and connection traffic, Znotins said. But for Southwest, flying out of Bush is a nonstarter because its base is at Hobby, an hour's drive south.

Diaz insisted that the city's decision will be made on an analysis of the pros and cons.

"This is a story about competition, not control and favoritism," Diaz said. "This story is about the rightful role of government working together at the federal and local level to provide the necessary services needed to grow the economy of this country and of this city."